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�� ��'� Memo To: Mayor and Council Neal Beets, City Manager From: Chris Miller Date: September 8,2005 Re: Supplemental Response to Councilmember's Budget Inquiries Dear Council. A few weeks ago, you received a memo, dated 8126105, that addressed some inquiries that were raised during the budget discussions held in July and August. Since that time, a couple of Councilmembers have shared some additional thoughts and perspectives on the 2006 Budget. Given that you will be asked to adopt a preliminary, not-to-exceed budget and tax levy at the 9/12/OS Council meeting, I feel that it would be helpful to provide some clarifying information regarding various City Manager budget recommendations. First, I think it is helpful to briefly revisit a few fundamental budgetary concepts including; levy vs. non-levy, one-time vs. recurring expenditures, and the use of reserves as a budget tool. I realize that we have had these discussions in the past, but we continue to observe various members of the Council reaching the wrong conclusion on how municipal finances apply to day- to-day operations. Following that brief overview, I think it's important to look at a few specific areas. Levy vs. Non-levy Certainly all proposed spending ought to receive a high degree of scrutiny. But it is imperative to make the distinction between levy-su�ported programs, and non-levy programs. Preliminary tax levies must be set by September I S''. for the following fiscal year. Once they are set, they cant�ot be increased, but can be lowered. The Final tax levy must be adopted by the end of December for the following fiscal year. Once the final levy is established, it cannot be changed (except under some rare circumstances). This is in stark contrast to fee-based programs, which the City has broad discretion to increase or decrease fees prior to, or throu_� the fiscal year. The distinction between levy and non-levy programs must also be considered when contemplating budget cuts. For example, the elimination of the purchase of recycling bins, the community survey, or the leaf pickup program, does � i�i1 save any tax levy dollars. These particular programs are fee-based. Also, with regard to fee-based programs, the City does i7t�1 have the option of taking fees from one program and using them for some other purpose. In most instances, legal restrictions prevent us from doing so.